Exercise 3-4B Prepaid items on financial statements Forestry Services Inc. experienced the following events in Year 1, its first year of operation: 1. Performed counseling services for $18,000 cash. 2. On February 1, Year 1, paid $12,000 cash to rent office space for the coming year. 3. Adjusted the accounts to reflect the amount of rent used during the year. Required Based on this information alone: a. Record the events in accounts under an accounting equation. b. Prepare an income statement, balance sheet, and statement of cash flows for the Year 1 accounting period. c. Ignoring all other future events, what is the amount of rent expense that would be recognized in Year 2? EXERCISE 3-4B a. Forestry Services Inc. Effect of Events on the Accounting Equation Assets =Stockholders' Equity Prepaid Event Cash Rent = Retained Earnings 1. Performed Services 2. Prepaid Rent 3. Used Rent Totals b. Forestry Services Inc. Income Statement For the Year Ended December 31, Year 1 Revenue Expense Net Income Assets: Forestry Services Inc. Balance Sheet As of December 31, Year 1 Total Assets Liabilities: Stockholders' Equity: Total Stockholders' Equity Total Liab. and Stockholders' Equity $7,000 Forestry Services Inc. Statement of Cash Flows For the Year Ended December 31, Year 1 Cash Flows From Operating Activities: Net Cash Flow from Operating Activities Cash Flows From Investing Activities: Cash Flows From Financing Activities: Net Change in Cash Plus: Ending Cash Balance c. The balance of the Prepaid Rent in Year 2, $ 6,000